White Rosebay Shipping SA v. Hong Kong Chain Glory Shipping Limited (Fortune Plum) [2013] EWHC 1355 (Comm)

Existing case-law on repudiatory breach of contract demonstrates that there is a middle ground between the innocent party’s acceptance of repudiation and affirmation of the contract, when the innocent party is making up his mind what to do. This case highlights the difficulties faced by a ship-owner in deciding whether his charterer has evinced an intention not to perform the charterparty. The owner must avoid terminating the charterparty too early, with the result that he finds himself in repudiatory breach because the charterer had not in fact evinced such an intention. On the other hand, the owner must not be too late in accepting the renunciation as terminating the charterparty, with the consequence that he is held to have affirmed the charter and foregone his right to terminate. Mr Justice Teare’s judgment is significant because it confirms that, if an owner is held to have affirmed a charterparty but the charterer continues to renounce the charter thereafter, the owner may subsequently terminate the charter lawfully and claim damages.

The background facts

On 20 July 2010, the parties entered into a time charter for a period of 35/38 months on an amended NYPE form for the Fortune Plum. Pursuant to clause 4 of the charter, hire was payable at a daily rate of US$17,700. The vessel was delivered to the charterers on 23 July 2010 and thereafter all hire payments were due on or before 23rd of each month.

A pattern of persistent late payment of hire by the charterers soon developed, with the length of delay in making the hire payments worsening over time and eventually certain hire instalments remaining unpaid altogether. In October 2011, the owners informed the sub-charterers that they were exercising a lien over sub-freights and sub-hires and also served a statutory demand on the charterers, claiming over US$1 million in overdue hire. The statutory demand remained unpaid. Additionally, on 1 November, the owners discovered that the sub-charterparty had been amended to delete the owners’ right to a lien on sub-freights and sub-hires. They inferred that this was designed to allow the charterers to divert the sub-freights and sub-hires to themselves and to trade the vessel without paying hire.

On Friday 11 November, the owners decided they would have to terminate the charterparty on the basis the charterers were not going to make any more hire payments and that the charterers were in anticipatory breach of and/or had renounced the charter. They informed the master accordingly on 12 November, instructing him that after the vessel departed from Bayuquan, she was to proceed to a suitable area and wait for further instructions.

In the meantime, on 9 November, the vessel had anchored at Bayuquan port. On 14 November, the vessel completed discharging and sailed from Bayuquan. On that day also, the owners informed the charterers that they were in repudiatory/renunciatory breach of the charter, which the owners accepted as terminating the charter. The charterers countered that the vessel’s withdrawal was wrongful and that owners were themselves in repudiatory breach.

The Tribunal’s decision

The Tribunal found that the charterers were in renunciatory breach by 7 November, but not before. They further found the owners were entitled to a reasonable period after 7 November in which to consider whether to accept the charterers’ renunciation and that, in this case, the reasonable period expired no later than Friday 11 November, the day on which the owners decided they would have to accept the breach. The Tribunal concluded, however, that by allowing the vessel to remain in the charterers’ service over the weekend for the purposes of discharging the cargo, the owners had affirmed the charter. It followed that the owners’ withdrawal of the vessel on the morning of Monday 14 November was itself a repudiatory breach.

The owners appealed to the Commercial Court on the grounds that the Tribunal was wrong to come to the following conclusions:

  1. That a ship-owner must withdraw the vessel immediately upon expiry of the "reasonable period" during which he is entitled to make up his mind (the "reasonable period" point).
  2. That the mere act of discharging could on its own amount to an unequivocal act from which it can be inferred that an owner intends to affirm the charterparty (the "discharge" point).
  3. That the owners could not terminate the charterparty in circumstances where the charterers continued to evince an intention not to perform the charter after the apparent affirmation (the "continued renunciation" point).

The Commercial Court decision

The reasonable period point

Mr Justice Teare considered that there was no error of law on the Tribunal’s part in relation to this issue. The Tribunal found that the innocent party had a reasonable period in which to make up its mind as to whether to accept a repudiation or to affirm the contract. The length of that period depended on the facts of the case. The Tribunal had expressly considered what time was reasonable in this case and had concluded, on the facts, that the owners in this case required no longer period than that between 7 and 11 November to make up their mind what to do. In his view, the Tribunal’s decision did not amount to saying that the owners were required to withdraw the vessel and terminate the charterparty immediately upon expiry of this period. Rather, the arbitrators had merely noted that there had been no immediate withdrawal, but had then considered the correct question, namely whether the owners’ conduct after expiry of the reasonable period demonstrated that they had foregone their right to withdraw the vessel.

The discharge point

Again, the Judge detected no error of law on the Tribunal’s part. Under an NYPE charter, it is the charterers’ obligation to discharge the cargo at their expense. In order to ensure that they did not have to pay for the costs of discharge, the owners had complied with the charterparty until the discharge was complete. The Tribunal had recognised the commercial considerations involved, but had nonetheless concluded that the continued compliance with the charterparty in allowing the discharge of the cargo to be completed after 11 November was an affirmation. This was a finding of fact that the Tribunal was entitled to make, although the Judge recognised that another tribunal might have concluded on the facts of the instant case that there was no affirmation. He added that it was not for the court to substitute for the Tribunal’s answer the answer it might have given had it been the tribunal of fact: "there is no ‘right’ answer but a choice of answers, none of which can be described as ‘wrong’" (see The Chrysalis [1983] 1 Lloyd’s Rep 503).

The continued renunciation point

The Judge held that the Tribunal had however erred in law in failing to make a finding as to whether there was continued renunciation by the charterers after the affirmation. He emphasised that an affirmation is not irrevocable where the renunciation continues (per the House of Lords in Johnson v. Agnew [1980] AC 367). Therefore, if the charterers continued to renounce the charterparty after the owners had affirmed it, then the owners were not in repudiatory breach if they accepted that continuing renunciation. In those circumstances, the owners would be entitled to terminate the charterparty and claim damages for renunciation. On the facts of this case, it did not necessarily follow from the owners’ affirmation after 11 November that the owners themselves committed a repudiatory breach on 14 November. If the charterers’ renunciation of the charterparty continued until 14 November, when the owners purported to accept the charterers’ renunciation as terminating the charterparty, then that termination was likely to be lawful and not repudiatory.

Mr Justice Teare allowed the appeal on the renunciation point. The Tribunal’s award was set aside and the matter has been remitted to the Tribunal so that it can consider whether the charterers’ renunciation of the charterparty continued after the owners’ affirmation of the charterparty and, if so, whether the owners’ termination on 14 November was legitimate rather than a repudiation.

Comment

The Judge in this case recognised the Tribunal’s right to exercise its own judgment in determining whether the owners had affirmed the charterparty and that the exercise of this judgment was not a mechanical exercise. Where a judgment has to be made, he acknowledged, all tribunals may not reach the same conclusion.

Owners who are faced with repeatedly defaulting charterers, therefore, will need to tread very warily. They must first make a judgment call as to whether repeated non-payment of hire is sufficiently serious that it reaches a point where the charterer can be said to have evinced an intention not to perform. In this case, that period of non-payment was over many months. From the single point in time where that intention is evinced, there is then a reasonable but uncertain period during which the owners have to consider whether to press on with the charter or accept that conduct as repudiatory and terminate. In this case, that period was held to be four days (the Judge considered that the time actually taken by the owners to make up their mind was the best evidence as to what a "reasonable period" would be in the circumstances). Following the expiry of that period, owners are immediately at risk of unwittingly demonstrating by their words or conduct that they are affirming the charter, which can be inferred merely by continuing to follow normal voyage instructions, despite express reservations of rights, when it is in fact their intention to accept a repudiatory breach and terminate.

However, owners will be encouraged by the Commercial Court’s finding that the right to terminate will revive if the charterer continues to evince an intention not to pay hire in the period following the affirmation. Accordingly, an owner who thinks it may have inadvertently affirmed a charterparty may still be able to terminate if it can show that the charterer did not alter its renunciatory conduct after the affirmation.